The Market Path to Nowhere – SPY, IWM, VIX OPEX 1/24

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The market has been range bound since the start of 2014. So what does that tell you? Is the market consolidating through time and setting up for higher prices? Is the market churning as funds try to disguise their selling which will result in a breakdown? I don’t know. What comes to mind though is the phrase “never short a dull market.”

Here is a look at the SPY chart:

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One thing I’m sure you have heard is how bullish everyone is and how the put/call ratio is historically low. While all of this is true and a bit concerning, I don’t think it is enough to base trading off of. There are other sentiment factors that can give you a different read and as with the case of the put/call ratio or investor sentiment surveys, they too are somewhat anecdotal. None of these indicators ever stands in a vacuum and so trading as if they did will do you more harm than good.  Here are some other indicators that do not demonstrate extreme near-term bullishness.

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Taken from StockTwits on January 18, 2014

This is a fairly new indicator and obviously represents a select group of people that 1) use StockTwits 2) post about SPY 3) happened to have posted within the last week 4) posted their bullish/bearish preference etc. An exact science? Hardly….however, it is a sentiment indicator not displaying extreme bullishness.

The January VIX expires this Wednesday and here is what the open interest looks like:


The largest near term open interest is the 16 call strike. I would say since this expires Wednesday, it likely doesn’t capture current sentiment. I imagine most people wouldn’t hedge with front month VIX options that expire in the one trading day we have left before Wednesday.

So, here is February VIX expiration:


As you can see the highest strike is the 20 calls with almost 400,000 open interest. Contrast that to the high strike in the January VIX that has around 275,000 open interest. So as carefree as the market may appear, there is some hefty hedging going on. Furthermore, Ryan Detrick, who has done a great job tracking the VIX sent out this tweet recently (link to his post here).

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Finally, here is what open interest for both the SPY and IWM look like for next week. These are just weekly expiration so keep in mind these are likely predominately retailers positioning themselves. Most big funds aren’t using weekly index options to protect their portfolio or make a directional bets.



As you can see there are high strike puts that go into the 170’s. The highest strike call is close to the current price and then the calls taper off. The calls and puts intersect around the 184 area. SPY closed Friday at 183.63.



Above you can see the puts and calls are more or less even with the highest strike for both puts and calls at the 115 strike. The IWM closed Friday at 115.93.

The Takeaway

So is everyone all in and bullish? I will let you decide that on your own. Does it matter in determining the near term market direction? I will also let you decide that on your own. Or you can just go with this which is much more simple: Some people are bullish and some are bearish. The overall market trend is up and hasn’t yet presented strong enough evidence for an immediate threat to the downside.

Special note to to the perms-bear that is about to comment on my last statement: Yes I know we can have a flash crash any second. I will ‘bare’ that in mind.